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Training Report towards partial fulfillment for the award of the degree of


Anuj Singh Yadav

Amit Singh Roll No- . MBA 2nd Year

Bhabha College of Engineering Ramabai Nagar (Kanpur)


I here by declare that this project work titled A SUMMER TRANING ON WORKING CAPITAL MANAGEMENT with special reference to PRAGA TOOLS LIMITED, Varanasi, is original in has been carried out by me as a student of Bhabha College of Engineering, Ramabai Nagar,

(Kanpur).. During 1st may to 30 June 2007. And has not been submitted
elsewhere for the Award of any degree of diploma either in part time or in full time to other university.

Date: Place:


Decision making is a fundamental part of the research process. Decisions regarding that what you want to do, how you want to do, what tools and techniques must be used for the successful completion of the project. In fact it is the researchers efficiency as a decision maker that makes project fruitful for those who concern to the area of study. Basically when we are playing with computer in every part of life, I used it in my project not for the ease of my but for the ease of result explanation to those who will read this project. The project presents the role of financial system in life of persons. I had toiled to achieve the goals desired. Being a neophyte in this highly competitive world of business, I had come across several difficulties to make the objectives a reality. I am presenting this hand carved efforts in black and white. If anywhere something is found not in tandem to the theme then you are welcome with your valuable suggestions.


I am highly thankful to Principal and Faculty of Bhabha College of Engineering Studies for giving me this opportunity to under take my project work in the Praga tools Limited. Varanasi. I am grateful to Mr. Uma Maheswara Reddy for giving me permission to do the project in PRAGA TOOLS LIMITED. I would express my sincere thanks to Mrs. Padmini for helping me a lot in gathering information for my project. I also express my gratitude to my Father, Mother and my friends who had been a constant source of encouragement and provided me the necessary help during the period of my project. Last but not least, I express my sincere thanks to the God Almighty for showering his blessings upon me and also all those who helped me directly or indirectly throughout my project work. (Amit Singh) Place Date:

ACT: Constitution of India, Art. 226-Writ of mandamus whether can be issued against a company-High Court holding petition under Art. 226 to be misconceived but still granting declaration to some petitioners that action of company against them was illegal--Competence of High Court to pass such order. HEADNOTE: The appellant was a company registered under the Companies Act, 1913. At the material time 56% of its shares were held by the Union Government, 32% by the Andhra Pradesh Government and 12% by private individuals. On July 1, 1961 a settlement was arrived at between the company and the workmen's union under which the workmen inter alia agreed to observe industrial truce for a period of three years i.e. upto July 1, 1964 and not to resort to strikes, stoppage of 'work or go slow tactics. On December 10, 1962 the company and the said union entered into a supplementary settlement under which the company agreed not to retrench or lay-off any of the workmen during the said period of truce. The said two settlements were arrived at and recorded in the presence of the Commissioner of Labour under s. 2(p) and s. 18(1) of the Industrial Disputes Act, 1947 and were to be in force as aforesaid until July 1, 1964. On December 20, 1963, however, the company entered into another agreement with the said union. The effect of this agreement was to enable the company notwithstanding the two earlier settlements to carry out retrenchment of 92 of the workmen with effect from January 1, 1964. Some of the affected workmen filed a writ petition under Art. 226 of the Constitution praying for a writ of mandamus against the company restraining it from giving effect to the said agree- ment. The Single Judge dismissed the petition on merits. In appeal

the Division Bench held that the company being one registered under the Companies Act and not having any statutory duty or function to perform was not one against which a writ petition for mandamus or any other writ could lie. No such petition could also lie against the conciliation officer who had signed the agreement, as on the facts of the case it was not he who sought to implement the agreement. The Division Bench however held that though the writ petition was not maintainable it could-grant a declaration in favour of three of the petitioners that the impugned agreement was illegal and void. The competency of the High Court to make such a declaration was challenged by the company in appeal before this Court. HELD : (i) ",The condition precedent to the issue of a mandamus is that there is in one claiming it a legal right to the performance of a legal duty by one against whom it is sought. An order of mandamus is, in form, a command directed to a person, corporation or an inferior tribunal requiring him or them to do a particular thing therein specified which appertains to his or their office and is in the nature of a public duty. It is however not necessary that the person or authority on whom the statutory duty is imposed need be a public official or an official body. A mandamus can issue, for instance, to an official of a society to compel him to carry out the terms of the statute under or by which the society 774 is constituted or governed and also to companies or corporations to carry out duties placed on them by the statutes authorising their undertakings. A mandamus would also lie against a company constituted by a statute for the purposes of fulfilling public responsibilities. [778 H-779 C] In the present case the company being a non-statutory body and one incorporated under the Companies Act there was neither a statutory nor a public duty imposed on it by a statute in respect of which enforcement could be sought by means of a mandamus nor was there in its workmen any

corresponding right for enforcement of any such statutory or public duty. The High Court therefore was right in holding that no writ petition for a mandamus or an order in the nature of mandamus could lie against the company. [779 DE] Sohan Lal v. Union of India, [1957] S.C.R. 738, Regina v. Industrial Court & Ors., [1965] 1 Q.B. 377, R. v. Lewisham Union, [1897] 1 Q.B. 498, 501, Mc. Clelland v. Northern Ireland General Health Services Boards, (1957) 1 W.L.R. 594, Ridge v. Baldwin, [1964] A.C. 40, Short v. Poole Corporation, [1926], Ch. 66 at pp. 90 to 91 and Attorney- General V. St. Ives R.D.C. [1961] 1 Q.B. 366, referred to. (ii)The High Court was however in error in granting the declaration in favour of the three workmen. [781 A] Once the writ petition was held to be misconceived on the ground that it could not lie against a company which was neither a statutory company nor one having public duties or responsibilities imposed on it by statute, no relief by way of a declaration as to the invalidity of an impugned agreement between it and its employees could be granted. The only course open to the High Court was to dismiss the petition and leave the workmen to the remedies under the Industrial Disputes Act. [780 F-H]





I II III 2 3 4 5 6 7 8-14 15-23 24-40




1. WORKING CAPITAL MANAGEMENT The success of business, among other things depends upon the manner in which its capital is managed in the dynamic business setting, the composition of working capital mismanaged, in the dynamic business setting, the difference between the current assets and current liabilities. Constantly changes in relation to the level of activity of the business concern and rates at which the current assets of current liabilities keep changing in relation to each other and other things are significant factors also continuous review and direction of the financial manager. It is the task of the financial maintain an appropriate level of working capital that is enough current assets to pay off current liabilities neither excess nor less because excessive working capital leads to interruption in the smooth functioning of the business concern. There are numerous instances in the history of business world where inadequacy of working capital has led to business failures when a firm finds it difficult to meetings day to day. Operating expenses essential out lays may have to be postponed for want of funds, operating plans will go out of gear & enterprise objectives on investment slumps the suppliers & creditors of the firm may have to wait longer to raise their dues & will hesitate to extend further credit to the firm. Thus efficient management of working capital in an important prerequisite for successful working of a business concern it reduces the chances of business failure generates a felling of security and confidence in the minds of personnel in the organization it assurance solvency of steady of the organization.


1.Their projects is helpful in knowing the companies position of funds maintenance and setting the standards for working capital inventory levels, current ratio level, quick ratio, current amount turnover level & web torn turnover levels. 2. This project is helpful to the managements for expanding the dualism & the project viability & present availability of funds. 3. This project is also useful as it companies the present year data with the previous year data and there by it show the trend analysis, i.e. increasing fund or decreasing fund. 4. The project is done entirely as a whole entirely. It will give overall view of the organization and it is useful in further expansion decision to be taken by management.


1. To examine the effectiveness of working capita management polices with the help of accounting ratio. 2. To study liquidity position of the company by taking various measurements. 3. To evaluation the financial performance of the company. 4. To make suggestions for policy makers for effective management of working capital.


Primary Data DEF: The first handed information/Fresh data collected through various methods is known as primary data. In respect of primary data which the researchers is directly collects data that have not been previously collected. The primary data was gathered through personal interaction with various functional heads and other technical personnel. Some information was also collected by observation. Secondary Data : DEF: The data which have been already collected & comprised for another purpose. Secondary data was collected various reports / annual reports, documents charts, management information systems, etc in PRAGA. And also collected various magazines, books, newspapers and internet. The analysis of the information gathered has been made on the basis of the clarifications sought during the personal discussions with the concerned people and perception during the personal visits to the important areas o services. In marking observations identifying problems and suggesting certain remedies such emphasis was given on the basis of opinions gathered during the personal discussions and with the personal experience gained during the academic study of M.B.A course.


1. The scope is limited to operations of Praga tools Ltd, Hyderabad. 2. The period consider 2 months The scope of the study is limited to collecting the financial data published in the annual reports of the company with reference to the objectives stated above and an analysis of the data with a view to suggest favorable solution to various problems related to financial performance.


1. The following are the various aspects involved in the analysis of the study. 2. The study in limited 4 years (2004-2005) to (2005-2006) performance of the company. 3. The data used in this study have been taken from published annual report only. 4. This study in conducted within a short period. During the limited period the study may not be retailed, full fledged and utilization in all aspects. 5. Financial accounting does not take into account the price level changes.


MACHINE TOOLS INDUSTRY AN OVERVIEW India ranks nineteenth in production and sixteenth in consumption of machine tools in the world. The Indian machine tool industry averaged more than 35 percent growth in 2004-05. Imports exceeded production in the year 2004 with us$356 million worth machine tools being imported while the production was only us$225 million. Machine tools from I percent of Indies engineering industry and contributes 0.3 Percent of total machinery exports. The Indian machine tool industry currently consists about 450 manufacturing units of which approximately 33 percent (150 units) Fall under the organized category. Further ten Major Indian companies constitute also most 70 percent of the total production. The government Owned Hindustan Machine tools Limited (HMT) alone accounts for Nearly 32% of Machine tools Manufactured in India Approximately 75% of the Indian Machine tool producers have received the coveted. 150 certification while the large organized players cater to Indians Heavy and Medium industries, the small scale sectors meets the demand of ancillary and other units World wide the total modify locations are 3,336. First highest modify location country is United States in 1333 lowest Modify location countries are Belarus, Bosnia and Merzegovina, Bulgaria, Croatia, Malta, Russian Federation in only one Modify Location. 51 modify location are located in India. Modern Machine Tool in Indias leading Industrial Magazine on machine tools and Ancillary industries. Published in affectation with the countrys apex Body for the machine tools industry. Indian machine tool Manufactures association (IMMA)

With a healthy readership base of over 2 lakhs, this Premium quarterly magazine is regularly referred to by the key decision makers in the machine tool, cutting and other manufacturing Industries that include CEOs. Directors, senior managers, as well as engineers and shop. Floor technical personal apart from students. It serves as the bench mark and with word it this ever growing sector of Indian industry. In addition to manufactures, this publication also reaches out to exporters, dealers, distributors, R&D personnel Educational institution, consultants, industry associations and trade commissions almost every entry in the industry. Modern machine tools provide an intelligent balanced and cohesive insight into the machine tools and ancillary industries in India in terms of the death editorial content. It includes the latest trends and technologies highly useful technical articles and case studies. Business strategies views and vision of industry leaders and one of the largest ranges of machines tools/cuttings tools. This apart, there is exhaustive coverage of the current national and international news, upcoming projects, tenders, events and much more that help the readers to effectively manage their business in a facilitator and guide for this burgeoning industry. Modern machine tools strives to facilitate effective interaction among several fatuities of the machine tool, cutting and user industries by enabling them in reaching out to their prospects buyers and sellers through better trade contacts and more business opportunities. Machine tool industry has undergone a radical shift in its paradigm thinking, the Indian machine tool industry is now recognized as a provider of low-cost high quality learn manufacturing solutions. The industry resiliently

supports all its users to enhance productivity as well as improve competitiveness, for the betterment of the final customer. Being an integral sector, growth of the machine tool industry has an immense bearing on the entire economy, especially Indias manufacturing industry. And is even more crucial for development of the countrys strategic segments such as Defense, railways, space and atomic energy. World over too, industrialized-advanced countries have created market inches on the back of a well- developed and supportive machine tool sector. In India as well, indigenous machine tools have the highest impact on capital output ratios. Machine tool consumption of Rs. 1,000 Crore truly supports the advancement of the countrys engineering sector, output of which is estimated to be worth over Rs. 1,50,000 crore. 2.2 Manufacturing range: The Indian machine tool industry manufactures almost the complete range of metal cutting and metal forming machine tools complete range of metal-cutting and metal-forming machine tools. Customized in nature, the products from the Indian basket comprise and conventional machine tools as well as computer numerically controlled (CNC) machines. There are other variants offered by Indian manufactures too, including special purpose machines, robotcsrobotics, handling systems and TPM friendly machines. Efforts within the industry, are now on to better the features of CNC machines, and provide further value additions at lower costs, to meet specific requirements of users. Based on the perception of the current trends, and emerging demands, CNC segment could be the driver of growth for the machine tool industry in India.

2.3 Current trends : A slowdown in the Indian economy since mid-1999 had its fallout on prospects of Indian machine tool manufactures. The Indian machine tool industry is besieged by lack of adequate business opportunities that has stemmed from sluggish demand in the home market of all user industries. Output by domestic metal working machine tool manufacturers in 2001 calendar year declined by 14 pr cent to Rs.5, 137 million marking the fourth yeast of decline, since 1997, for the Indian machine tool industry. Much of this fall was due to subdued investment by all the major users segments of machine tools, except the Defense expenditure outlay. While decrease in domestic production was dormant in case of conventional metalworking machine tools computer numerically conventional metalworking machine tools, computer numerically controlled (CNC) machine tool manufacturers too suffered, although marginally. Lathes, machining centers, special purpose machines, and grinding machines were among the machine tools that sustained much of the order inflow during 2001.even though these segments registered decline, in comparison with the previous corresponding year. 2.4 Export Performance: In view of an imminent slowdown in the Indian economy, most Indian machine tool manufactures focused on potential overseas markets for business opportunities. Sustenance on Indian market alone did not look feasible enough. Further, there has off late been a perceptible change in the image of the made in India brand in overseas markets particularly true for Indian-built machine tools. Enhanced features, competitive pricing, and marketing focus has increased demand for Indian made machine tools in overseas markets, particularly in Europe, United states, and East-Asian regions. industry, primarily because of a higher capital

And this is what

Indian machine tool manufactures are hoping to

leverage so as to post an optimistic export turnover in the next few years. Indian-made machine tools are currently exported to over 50 countries: major ones being United states, Italy, Brazil. Germany and the middle East. Lathes and automats, presses, electro-discharge machines, and machining centers formed the bulk of export orders for Indian manufactures. These machines from the Indian basket are generally favored in overseas markets primarily due to their cost-competitiveness, as compared to that available elsewhere compared to those available elsewhere. This vision of the Indian machine tool industry is now to step out and establish a relative presence in, other potential markets. World-over, market leaders have been those who have looked to increase their market presence beyond their national frontiers. 2.5 Industry Structure Machine tool industry in India comprises about 450 manufactures with 150 units in the organized sector. Almost 70 percent of production in India is contributed by ten major companies of this industry. And over three-quarters of total machine tool production in the country comes out of ISO certified companies. Many machine tool manufacturers have also obtained CE marking certification, in keeping with requirements of the European markets. The industry has an installed capacity of over Rs. 10,000 million and employs a workforce totaling 65,000 skilled and unskilled personnel. Machine tool industry in India is scatted all over the country. The hub of manufacturing activities, however, is concentrated in places like Mumbai and Pune in Maharashtra; Batala, Jullunder and Ludhiana in Panjab; Ahmedabad, Baoada, Jamnagar, Rajkot and Surendranagar in Gujarat, Combatore and Chennai (Madras) in Tamilandu: some parts in East India; and Bangalore in Karnataka.

Bangalore is considered as the hub for the Indian machine tool industry. The city, for instance, house HMT machines Tools limited, a company that manufactures nearly 32 percent of the total machine tool industrys output. 2.6 User Industries Services The industrys prospects mainly depend on growth of engineering industries. The user sectors of machine tools are the automotive, automobile and ancillaries, Railways, Defense, Agriculture, steel, Fertilizers, Electrical, Electronics, Telecommunication, textile machinery, ball & roller bearings, industrial values, power-driven pumps, multi-product engineering companies, earth moving machinery, compressors and consumer durable like washing machines, refrigerators, television sets, watches, dish-washers, vacuum cleaners, air conditioners, etc.


3.1 INTRODUCTION Praga is once of the leading machine tool manufacturing units in India established in the year 1943, Pragas production are well known in the field of machine tools the company in organized in four divisions via the machine tools forge foundry and CNC division which pulsated with the activities of 697 employees turning out a wide range of production the four divisions equipped with the modern facilities for design development of manufacture of machine tools, are manned by qualified personnel with proven record of technical knowledge and exquisite craft smashup acquitted over a period of year. Praga is proud of its diverse of machine tools the cutler& tools venders milling machines copy lathes thread rolling machines & Praga CNC machines which keep pace with the ever changing technology in addition the company also manufactures a wide of industrial forgings for railway automotive & ordnance applications. Pragas wriest investment has been in its excellent collaboration with world famous names like Jones & shipman of UK for surface grinding and cutter of tool vendors gamin of France for milling machines scoffers of grace for thread rolling machines George finisher of Switzerland for coping lather Mitsubishi Heavy industries of Japan for machining centers of Kayo spiky of Japan for CNC lather the collaboration have culminated in Praga producing machine tools of the highest quality conforming to international standards by virtue of their dependability prevision engineering & proven.

The Praga Tools is one of the oldest, machine Tools industries in India and has entire its golden jubilee year in 1993-94. The company has incorporated has the joint stock company is 1943 has a private company with objective of manufacturing, instruments with the Technical assistance of a few Czechoslovakia Engineers. The company was incorporated in Many 1943 as a public limited company in private sector. The name PRAGA symbolizes the technical co-operation extended in the initial phase by some Czechoslovakian engineers who suggested the naming of the company as PRAGA after their capital city PRAGUE (PRAGA). In March 1995, the Government of India acquired the controlling interest in the company by acquiring majority shares and placed the administrative control under the ministry of commerce and industry from May 1995 to December 1963. The managing agents M/S united industrial corporation limited initially managed the company. Administrative control of the company has been transferred from the defense minister to the department of public enterprise under ministry of industry on the 25 th of April 1986. Presently the company enjoys the status of being a subsidiary of HMT LTD. Bangalore when a paid up capital of the company was transferred in its name from the government. The company has four manufacturing nits located with in the twin cities of Hyderabad at Kavadiguda at Secunderabad it manufactures a wide range of machine Tools, accessories and defiance items. A unit of forge and foundry divisions is located at Kukatpally Hyderabad where manufactures castings and forgings are.

A CNC project was established with advance technology like numerical control machines like automobiles CNC lathes, VNC mailing machines etc are manufactures with the qualified personnels in the fields of engineering of technology. The company has manpower of 2000 employees turning out wide range of products. The company has organized into four divisions viz., the machine Tools division (MT-I), machine Tools II (MT-II), forge and foundry division, and the CNC division. Performance Praga machine tools ate penetrating large segments of foreign markets including UK CIC Canada, Bulgaria, Indonesia, Germany, Japan. PRAGA is even mote proud of the fact that it has contributed to the development of thee machine tools industry in the development of the machine tools industry in the country and the creation of a vast band of skilled technicians thus Praga to day in name of techno, within the machine tool industry.


VISION STATEMENT: Praga tools to be the provider of choice for total machine tools solution to customers and a significant provider of service in Indian industry of oversees too the strong market position in to be sustained by the provision of integrated products and services and the aggressive marketing of machine tool knowledge expensive and support services. COMPANY STATRATEGY: 1. To maintain good customer relation 2. Providing after seller service 3. Increasing the book order position 4. To maintain good quality and loyalty of the customers on their products 5. Maintain better research and development activities 6. Relation to company and other customer services through conducting the product exhibition within the company preview QUALITY VALUE: Commitment of the management of the quality at all stager. To create quality culture among all employees to maintain quality leadership in all products. To maintain quality leadership in all products and services. Total customer satisfaction through quality goods and services. Total quality through performance leadership.

3.3 MANUFACTURING FACILITIES The company has two manufacturing units the order manufacturing unit is located at Kavadiguda in Secunderabad, the heart of the city these unit houses the machine toils division and the corporate head office and accompanies and area of slightly over 1 acres the company. Has its second manufacturing has is at balanagar in Hyderabad, about 5 to 6 kilometers from Hyderabad, airport the CNC division forge shop of foundry division are located in the balanagar unit the total and available with the currently utilized by the CNC division forge shop and foundry division leaving a surplus of nearly 100 acres. 3.4 PRODUCT RANGE: The company has three manufacturing division viz., can pavilion forge shop and foundry division. MACHINE TOOLS DIVISION: The major products manufactured by the company in its machine toll division are cutler of fool grinders, milling machines, thread rotting machine, lather chuckn etc. There products were developed with the technical assistance of the world-renowned machine tool manufacture by entering into collaboration agreements with M/s. Escofier, SA, France, M/s. F. Pratt and Co. and U.K. There machines enjoy good reputation in the market. FORCE DIVISION: Railway Duplication Auto dialer pants Tractors links

Other carting BOUNDARY DIVISION: Carting for companies machine tools: The sophisticated machines like CNC machining center sideway, grinding machines, universal grinding machines, jigs boring machine with coordinated system been added at a cost of Rs. 1,107.05 lacks. PRAGAS VALUES: Underlying our minion in a set of core corporate valued which deliver praga priorities. This set of values creates an overall framework for determining our derived future and developing plans to achieve it. We take advantage of existing synergies and foreseeing higher level of competitiveness. Safety in the priority value for all aspects of our business.

SWOT Analysis: STRENGTHS: Proven products and brand image. High brand loyalty of customer. High market shares in few of the products categories. Skilled work force. ISO 9001 accredited company. WEEKNESSES: Limited product gage. Low volume production. Out dead technology. Inadequacy of working capital. Aberrance of MIS. Board needs to be board bared and must include. Financial expensive. Obralete machinery. High man power cost. Poor marketing plants. OPPORTUNITIES: Prospects of improved in auto and automotive sector. Export potential for exports of machines. Foreign and components(with up gradation)

Opportunity to from joint venture update technology. And use technical manicuring experience for globalization through venture partnership. Diversification into related areas where ever synergy exists.

Threats: Dwindling market for some of the products server. Competition from imports of latest technology machines. A threat from second hand machine imparts. Shrinking resources of traditional customers, defense and railways. The above analysis indicates ample scope and prospects for the company subject to corrective steps being taken early.


4.1 NATURE OF WORKING CAPITAL Working capital management in concerned with the problem that arises in attempting to manage the current assets current liabilities and the inter relationship the exist between them the term current assets refers to those assets which in ordinary course of business can be or will be turned into cash within one year without undergoing diminution in value and without undergoing in value and without disrupting the operations of the firm. The major current assets are cash marketable securities accounts receivable and inventory, current liabilities those liabilities, which are intended at their inception to be paid in the ordinary course of business with in a year current liabilities are amount payable, bills payable bank overdraft and outstanding expenses.

4.2 DEFINITION OF WORKING CAPTIAL: According to MY Khan and P.K Jain Working capital refers to manage the firm current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. According to the Shubin working capital is an amount of fun is necessary to cover the cost of operating the enterprise. Working capital management is concerned with the problems is that arise in attempting to manage the current assets and the current liabilities and their inter relationship they arise between them. Current assets refer to those assets which to ordinary course of business can be or will be turned into cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The major current assets are cash marketable securities accounts receivable and their inception to be paid in the ordinary course of business within a year out of Current Assets or earnings of the concern. The basic Current Liabilities are Bill payables, Bank Overdrafts and Outstanding expenses. The goal of working capital managements is to manage the firms Current Assets. And Current Liabilities in such a way that a satisfactory level of working capital is maintained.

Thus the current assets should be large enough to cover its current Liabilities in order to ensure a reasonable margin of safety. Each of the current assts must be efficiently in order to maintain the liquidity of the short term be managed efficiently in order to maintain the liquidity of the short term sources of financing must be continuously managed to ensure that they are obtained and used in a best possible way. Therefore interaction between current assets and current liabilities in the main theme of working capital Management. The current assets should be large enough to cover is current liabilities in order to ensure a reasonable margin of safety. The interaction between current assets and current liabilities in therefore the main theme of the threat of working capital management. The two concepts of working capital are: 4.3 Methodological Framework The data for the period 2001-2005 used in this study have been taken from primary and secondary sources. The necessary primary data have been collected from corporate office of the organization; secondary data have been collected from the financial statements published in the report of the PRAGA TOOLS LTD. Data was analyzed through various established techniques of working capital and personal observation. Editing the data, clarification and tabulation of the financial data collection from the above mentioned source have been done as per the requirements of the study. Data has been analyzed using various comparative statements and working capital ratios. The data is analyzed in the chapter-4 Analysis of Working Capital PRAGA TOOLS LTD under the following head.

1. Trends in Net Working Capital 2. Working Capital Ratios a) Current Ratios b) Quick or Acid test Ratio c) Current Assert Turnover Ratio d) Current Asserts to Total Asserts Turnover Ratio e) Working Capital Turnover Ratio

3. Cash Management a) Percentage of Cash to Current Asserts 4. Receivables Management a) Debtors Turnover Ratio b) Debtors Collection Period 5. Inventory Management a) Inventory to Total Current Asserts b) Inventory Turnover Ratio c) Inventory Holding Period in Days 4.4 NEED FOR WORKING CAPITAL: Working capital is the amount of funds necessary to cover the cost of operating the enterprise. Working capital in a going concern is revolving funds; it consists of cash receipts from sales which are used to cover the cost of current operations. The need of working capital arises because of time gaps in manufacturing and marketing cycle of business operations. This time gap is due to time gaps between Cash and purchase of Raw-Materials. a) Purchase and production b) Production and sales c) Sales and Realization of cash. During these intervals, the company should have ready working or operating funds to keep their business going. Thus every business concern

should have sufficient liquidity funds as its disposal to buy Raw-Materials, stores etc to pay wages to personnel and to meet incidental expenses with the installed plant equipment, tools and other fixed assets, the concerned would be able to produce finished goods by spending cash or Raw Materials, intermediate goods Labor remuneration etc. The goods so produced will swell into inventories or stock soon, the stock will take the form of debtors or Bill Receivable on maturity. There is therefore, a need for working capital, because the production Sales and cash payment and realization of cash are not instantaneous, the company needs cash to purchase Raw material and to meet expenses as there may not be helps to meet future agencies. The stocks or Raw materials are kept in order to assure smooth production and protect against the risk of Non availability of raw material. Similarly, stocks of finished goods have to be carried to meet the demands of the customers on continuous basis and sudden demand. Thus, an adequate amount of funds has to be invested in current assets for smooth and uninterrupted. Production and sales process, which is refers to as operating cycle or cash cycle. The operating cycle determines the need for working capital. The operating cycle represents the period during which investment of one unit of remain blocked till recovery out of revenue, in other words, the operating cycle refers to the time necessary to complete. a) Conversion of cash into Raw Material. b) Conversion of Raw Material into finished goods. c) Conversion of finished goods into cash sales or credit sales. d) Conversion to credit sales or receivable into cash. Thus, it is said Management must know the length of time required to convert cash into resource used by the firm, the resource into the resource used the firm

the resource into final product. The final product into receivable bank into cash. This is the operating cycle of an enterprise. Thus, it is said Management must know the length of time required to convert cash into resource used by the firm, the resource into the firm the resource into final product. The final product into receivable bank into cash. This is the operating cycle of an enterprise. The pattern of operating cycle depends upon the nature of the enterprise. The financial institution may have a shorter cycle while trading concern has and extended one. The usual operating cycle of manufacturing concern is shown. In real business situation, the operating or cash flow cycle in not as simple and smooth going as the depicted above. A going concern by nature undergoes the process of liquidity the besides, a circular flow among working capital itself, all process of liquidity valued added to the product of the firm. Therefore, we can say that, working capital in needed not only for financing current assets but also to meet various other requirements like payment of dividends, interest etc. Therefore, it is recovery for a product financial manager to provide correct amount of working capital at the time to provide for operating reach. 5.5 SCOPE OF WORKING CAPITAL MANAGEMENT Since a firm has to maintain a sound working position and there should be optimum investment in working capital, effective management involves manages of current assets and current liability. Current asserts management involves management of current assets like Cash. Marketable Securities, Account Receivable, inventories etc. effective in order to maintain liquidity of the firm. The process of current asserts management can be as follow management of cash and Marketable Securities. a) Management of cash and Marketable Securities.

b) Management of Cash. Current liability management is concerned with the management of curr3ent liabilities like, trade Credit or Account Payable, Accruals etc. which represents short term financial source and must be cautiously management to ensure that they are obtained and used in the best way possible. 4.6 OBJECTIVES OF WORKING CAPITAL The main if working capital management in to attain trade off between profitability and risk. Here risk refers to the profitability that a firm will become technically involvement that is unable to pay obligation promptly. Risk is commonly measured by using either the amount of net working capital of the current ratio. Thus more the net working capital the more liquidity is associated with increasing levels of risks. To have higher profit the firm may have to sacrifice solvency that is take the risk of technical insolvency and maintain relatively low level of current assets. When the firm does so, its profitability would improve but greater risk of technical insolvency. Thus, if a firm wants to increase profitability it must also increases its risk and if it want to decrease risk, it must decrease profitability. Thus, working capital management involves trade off between risk and profitability.

4.7 COMPONENTS OF WORKING CAPITAL The main components of working capital are currents assets & currents liabilities.

A. CURRENT ASSETS: Current assets comprised items that would get converted in to cash in short term, within a year, through the business operations current asserts include. Inventories including stock of raw material, work in progress, finished goods & factory supplies. Packing, shipment material, office supplies etc Loan & advances, other balances; include sundry debtors, bills receivables and others including loans and advances, prepaid expenses etc. Marketable securities including government securities and semi government securities, cash and bank balances. B. CURRENT LIABILITIES: Current liabilities are those which are expected to fall due of mature for payment in short period of one year and they represent short term source of funds. They include: C. SHORT TERM BORROWINGS:

Include bank borrowings other than those against own debentures and other mortgages, trade creditors and other labializes sundry creditors, outstanding expenses and advances received etc. Provision for taxation, dividends and other current provisions.

4.8 GROSS WORKING CAPITAL: Gross working capital in represented by the sum total of all current assets of the enter price adequate funds have to be provided to sustain the movement of the row material through the work in process to the finished goods stage and then to receivables and up to realization of cash. NET WORKING CAPITAL: Net working capital in excess of current assets over current liabilities the concept of net working capital highlights the character of serves from which the funds have been obtained to support that position of current liabilities.




Business firms aim at maximizing the wealth of shareholders. In its endeavor to maximize shareholders wealth a firm should earn sufficient return from its operation earning a steady amount of profits required successfully sales activity. The firm has to invest enough funds in current assets for the success of sales activity current assets are needed because sales dont convert into cash instantaneously there is always an operating cycle involved in the conversion of sales into cash. PERMANENT AND TEMPORARY WORKING CAPITAL: The above figure shows permanent level is fairly constant, while temporary working capital is fluctuating some times increasing and some time decreasing in accordance with seasonal demands, in the case an expanding firm the permanent working capital may not be horizontal. This is because the demand for permanents current asserts might be increasing or decreasing support a rising level of activity. In that the line should be a rising one.

Temporary or Fluctuating Permanent



Both kinds of working capital are necessary to facilitate the sale process through the operation cycle. Temporary working capital is created is created to meet liquidity requirements that are purely transient nature.

4.9 THE DANGERS OF EXCESSIVE WORKING CAPITAL 1. It results in unnecessary accumulation of inventories thus chances of inventory mishandling waste theft and losses increases. 2. It is an indication of defective credit policy and slack collection period. Consequently higher incidence of bad debts results, which adversely effect degenerated into management co placement, which degenerated into managerial inefficient. 3. Excessive working capital makes management complacent, which degenerates into managerial efficiency. 4. Tendencies of accumulating inventories to make speculation profits grow this may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits. INADEQUATE WORKING CAPTIAL 1. It stages growth and become difficult for the firm to undertaken profitable projects for non-availability of working capital funds. 2. It becomes difficult to implement operating plans and achieve the firms profit target. 3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day commitments.

4. Fixed assets are not efficiently utilized for the lack of working capital funds thus the firms profitability would deteriorate. 5. Paucity of working capital funds renders the firm unable to avail attractive credit opportunities etc. 6. The firm losses its reputation when it is not in position to honor its short term obligation as result the firm faces tight credit terms. Thus, enlightened management should therefore maintains a right amount of working capital on a continuous basis which helps to develop the organization effectively and efficiently. 4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL MANAGEMENT: 1. Working capital management requires must of the finance manger time as it represent a large position of investment is assets. 2. Working capital management requires much of the finance management time as it represent larger position of investment in assets. 3. Action should be taken to curtail unnecessary investment in current assets. 4. All precautions should be taken for the effective and efficient management of working capital. 5. Larger firms have to manage their current assets and current liabilities very carefully and should see that the work should be done properly in order to achieve predetermined organization goals. 6. The financial manger should pay special attention to the managements of current assets on continuing basis.

FUNDS FLOW STATEMNET Funds flow analysis design effective management toll to study how funds have been procured for the business and how they have been employed. The statement of variation in working capital is based fundamentally on the same approach used for the preparation of funds flow statement. This technique helps to analyses changes in working capital between dated or two balance sheets. The comparison of current assets and current liabilities as shown in the balance sheet at the beginning and the ending of a specific period. The statement of changes in working capital reveals to manage to way in which working capital was obtained and use with this insight management to can prepare the estimates of the working capital flows. A project statement of changes in working capital is very much useful in the firm long planning. CONCEPT OF FUND The working capital flow or fund arises when the net affect of a transaction is to increase or decrease the amount of working capital a firm will have same transactions that will change net working capital and same that will cause no change in net working capital transaction which change net working capital include most of items of the profit & loss account and those business events which simultaneously effect both current and not current balance sheet items. On the other based transaction, which do not increase or decrease

working capital include those which effect only current accounts or only non current accounts.

USES AND SIGNIFICANCE OF THE FUND FLOW STATEMENT 1. A Funds Flow statement show how the resource has been obtained and the uses to which are put it helps in analyzing the financial operations. 2. It helps in determining the financial consequences of business operations. 3. It is useful in judging whether the fund has expanded at too faster rate and whether financing is trained. 4. It points out the effectiveness with which the management has handled working capital during the period under review. 5. The statement can assist the financial management in planning intermediate and long-term finance to obtaining resources in the further and determining how they are used. 6. It gives an insight into the evaluation of the present situation it provides certain useful information about the firm financial policies to out side world. The funds flow statement is becoming popular with the management because it helps to explain why in spite of earn sizeable

amount of profits the company is experiencing difficulty in making payment to creditors the rate of dividend on equi9ty shares cannot be increased and bank balance is getting thinner.

OBJECTION OF FUND FLOW ANLAYSIS: 1. To indicate the result of current financial position. 2. To lay emphasis on the most significant change that has taken place during specified period. 3. To show how general expansion in business has been financed or to describe the sources from which additional funds were derived. 4. To know the relationship between profits from operating distribution of dividing and rating a new capital or contracting of loans. 5. To give reorganization to the fact that a business exists on flow of funds and is not a static management.

MANAGEMENT OF CASH CASH MANAGEMENT:Cash is the important assets for the operations of the business cash is the basis input to keep the business running on continuous basis. Cash shortage will disrupt the firms manufacturing operations while excessive cash will simply remain ideas without contribution any thing towards the firms profitable way. Cash management is concerned with the managing of cash flow into and out of the firm cash flow with in the firm and cash balances held by the firm at appoint of time by financing depict investing surplus cash. Cash management is to obtain adequate control over cash position to keep the firm sufficiently liquidate and to use excess cash in some profitable way. CASH PLANNING:Cash planning is technique to plan and control of the use of funds. It protect the financial condition of them firm by developing a projected cash statement from a forecast of plans are very crucial and developing the overall operating plans of the firm. USES OF CASH MANAGEMENT:1. It indicates companys future financial need especially for its working capital requirement.

2. To help to evaluate proposed capital projects. 3. It pinpoints the cash required to finance these projects as well as the cash to be generated by the company to support them. 4. It helps to improve corporate planning. 5. Cash forecasting helps to future and to formulate projects carefully.


Table-1 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 31-03-2001 & 31-03-2002 Rs. in Lakhs S.No. (a) Current Assets Inventories Sundry debtors Cash & Bank balance Loan & Advance Total (a) (b) Current Liabilities Current Liabilities Provisions Total (b) Working Capital Net increase in W.C Total of N.W.C (a-b) 3,41,037.00 82,424.00 4,23,461.00 1,74,8,741.0 0 3,70,306.00 83,160.00 4,53,466.00 -2,49,361.00 74,520.00 -7,74,841.00 -1,74,841.00 74,520.00 74,559.00 74,559.00 29,269.00 736.00 1,44,120.00 71,970.00 1,213.00 31,317.00 2,48,620.00 1,19,395.00 61,278.00 1,252.00 22,180.00 2,04,105.00 39.00 9,137.00 24,725.00 10,692.00 Particulars 31-03-2001 31-03-2002 Increase Decrease

ANALYSIS: Above table explaining that working capital shows the continuous increase in the net working capital through in the year 31-03-2000 to the year of comparing the balance sheet is the year 31-03-2001 to 31-03-2002. So, this is due to the sale of inventory and reducing the debtors and increasing the current liabilities and provisions.

Rs. in Lakhs S.No. (a) Current Assets Inventories Sundry debtors Cash & Bank balance Loan & Advance Total (a) (b) Current Liabilities Current Liabilities Provisions Total (b) Working Capital Net decreased in W.C Total of N.W.C (a-b) 3,70,306.00 83,120.00 4,53,466.000 -2,49,361.00 3,10,123.00 71,062.00 3,81,185.00 -2,60,231.00 10,870.00 -2,49,361.00 -2,49,361.00 88,940.00 88,940.00 60,183.00 12,099.00 1,19,395.00 611,278.00 1,252.00 22,180.00 2,04,105.00 72,230.00 28,478.00 7,041.00 13,205.00 1,20,954.00 5,789.00 8,975.00 47,165.00 32,800.00 Particulars 31-03-2002 31-03-2003 Increase Decrease

ANALYSIS: Above table discloses that working capital shows the continuous increase in the net working capital through in the year 31-03-2002 to the year of comparing the balance sheet is the year 31st March. So, this is due to the sale of inventory and reducing the debtors and decreasing the current liabilities and provisions.

Table-2 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 31-03-2003 & 31-03-2004. Rs. in Lakhs S.No. (a) Current Assets Inventories Sundry debtors Other current Assets Cash & Bank balance Loan & Advance Total (a) (b) Current Liabilities Current Liabilities Provisions Total (b) Working Capital Net decreased in W.C Total of N.W.C (a-b) 3,10,123.00 71,062.00 3,81,185.00 -2,60,231.00 3,77,829.00 71,793.00 4,49,562.00 -1,92,057.00 68,174.00 1,59,853.00 68,174.00 1,59,853.0 0 67,706.00 671.00 72,230.00 28,478.00 --7,041.00 13,205.00 1,02,954.00 50,765.00 34,042.00 4,932.00 1,56,398.00 11,368.00 2,57,505.00 5,564.00 4,932.00 1,49,357.00 1,837.00 21,465.00 Particulars 31-03-2003 31-03-2004 Increase Decrease

ANALYSIS: The above table discloses in this working capital as that was the Net decrease in working capital in this year 31-03-2003 to 31-03-2004 is Rs.68,174.00 due to major reasons of adjusting current assets as increase and the current liabilities decrease but the provision decreased.

Table-3 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 31-03-2004 & 31-03-2005. Rs. in Lakhs S.No. (a) Current Assets Inventories Other current Assets Sundry debtors Cash & Bank balance Loan & Advance Total (a) (b) Current Liabilities Current Liabilities Provisions Total (b) Working Capital Net decreased in W.C Total of N.W.C (a-b) 3,77,829.00 71,733.00 4,49,562.00 -1,92,057.00 3,90,548.00 57,232.00 4,47,780.00 -3,00,422.00 1,08,365.00 -1,92,057.00 -1,92,057.00 1,08,365.00 1,25,886.00 1,25,886.00 14,501.00 12,719.00 50,765.00 4,932.00 34,042.00 1,56,398.00 11,368.00 2,57,505.00 43,429.00 5,313.00 36,681.00 51,469.00 10,466.00 1,47,358.00 381.00 2,639.00 1,04,929.00 902.00 7,336.00 Particulars 31-03-2004 31-03-2005 Increase Decrease

ANALYSIS: In this above table of working capital discloses that as the net increase in working capital in this 31-03-2004 to 31-03-2005 is Rs.1,08,365.00 due to major reasons of adjusting current assets as increase and the current liabilities decreases but the provision decreased.


S.No (a) Current Assets Particulars Inventories Sundry Debtors Cash & bank balances Loans & advances Total (a) (b) Current Liabilities Current liabilities Provisions Total Working capital Net decrease in W.C Total of N.W.C (a-b) 3,90,548.00 57,232.00 4,47,780.00 -3,00,422.00 1,93,986.00 1,06,436.00 1,06,436.00 2,09,334.00 2,71,304.00 69,406.00 3,40,710.00 -1,06,436.00 1,93,986.00 2,09,334.00 1,19,244.00 ------12,174.00 31-03-2005 43,429.00 5,313.00 36,681.00 51,469.00 1,47,358.00 31-03-2006 40,255.00 5,837.00 37,282 1,34,653.00 2,34,274.00 Increase -------524.00 601.00 83,184.00 Decreased 3,174.00 --------------------

ANALYSIS :Lastly in this year the statement of working capital shows the continued decreased in the net working capital through in the year 31st March 2005 to the year of comparing the balance sheet is the year 31 st March 2006. So, this is due to funds flow statement.






Increased in secured Loans Increased in Un-secured Loans


Purchased of Fixed Assets Net increased in working 14,062.00 capital Funds Lost in operation

108.00 85,948.00 1,67,925.00 2,53,981.00





During this year 2000-2001 the funds flow statement the losses of the PRAGA TOOLS LIMITED is still continuing. The company has mobilized his funds increased figures of the secured and unsecured loans. The company has adjusting their losses through these areas and in this year the purchasing power of the company is also decreased.






Increased in secured Loans Increased in Un-secured Loans Work in Progress Total


Purchased of Fixed Assets Net increased in working 8,237.00 capital 746.00 Funds Lost in operation

33.00 85,948.00 1,87,418.00 2,73,399.00




In this last year of comparing there is the funds flow statement is still including the losses from the operation. The company has procured huge amount from borrowing loans in the from of secured and unsecured loans. The company has Wright off their losses in operations which is the major thread of the company thats need to be ratified by the management of the PRAGA TOOLS Limited.






Increased in secured Loans Increased in Un-secured Loans


Purchased of Fixed Assets Net increased in 13,764.00 working capital Funds Lost in operation

652.00 10,870.00 4,09,284.00 4,20,779.00





During this year 2002-2003 the funds flow statement the losses of the PRAGA TOOLS LIMITED is still continuing. The company has mobilized his funds increased figures of the secured and un-secured loans. The company has adjusting their losses through these areas and in this year the purchasing power of the company is also decreased.






Increased in un-secured Loans Sales of fixed assets Net decreased in working capital Funds lost in operations Total

13,747.00 9,211.00 68,174.00 14,657.00 1,05,789.00

Decreased in secured loans


10,870.00 Total 1,05,789.00


During this year 2003-2004 the funds flow statement the losses of the PRAGA TOOLS LIMITED is still continuing. The company has mobilized his funds from increased figures of the secured and un-secured loans. purchasing power of the company is also decreased. The company has adjusting their losses through these areas and in this year the






Increased in Share Capital funds. Increased secured loans Increased un-secured loans Sales of fixed assets Total

Net increased in working capital Funds lost in 2,12,657.00 operations 1,700.00 13,746.00 15,266.00 2,43,369.00 Total

1,08,365.00 1,35,004.00



During this year of comparing there is the funds flow statement is still including in losses from the operations. The company has procured huge amount from borrowing loans in the form of secured and unsecured loans. The company has Wright off their losses in operations in operations which is the major thread of the company thats need tobe ratified by the management of the PRAGA TOOLS Limited.

Funds Flow statement as on 31st March 2006

SOURCES Sales of fixed assets 2,043.00 Net decreased working capital Funds lost in operations Total AMOUNT APPLICATIONS Decreased Security loans Decreased unsecurity loans AMOUNT


1,93,986.00 16,74,024.00 18,70,053.00




ANALYSIS:In this year 2005-2006 the funds flow statement the losses of the PRAGA TOOLS LIMITED is still continuing. The company has mobilized his funds increased figures of the secured and unsecured loans. The company has adjusting their losses through these areas and in this year the purchasing power of the company is also decreased.

Funds Flow statement as on 31st March 2006

SOURCES Sales of fixed assets


APPLICATIONS Decreased Security


2,043.00 Net decreased working capital Funds lost in operations Total 16,74,024.00 18,70,053.00 1,93,986.00

loans Decreased unsecurity loans





ANALYSIS:In this year 2005-2006 the funds flow statement the losses of the PRAGA TOOLS LIMITED is still continuing. The company has mobilized his funds increased figures of the secured and unsecured loans. The company has adjusting their losses through these areas and in this year the purchasing power of the company is also decreased.


Series1 120 100 80 60 40 20 0 2002-03 2003-04 2004-05 2005-06

INTERPRETATION:Net working capital had shown an increasing trend since, 2002, which in taken as a base year from 100% to 98.40% in 2006. Which appears to be a normal trend. A careful analysis into the components of the working capital would reveal the changes in NWC the current assets decreased in the next years that is 2003-04 and at the next consecutive assets increased in the next consecutive year to a good extent, but there is a decreasing trend in the year 2005-06 as the current liabilities are covered their in a increase in the next two year, 2003-04 & 2004-05 but there is gradual decrease in the year 2005-06 which is good sign to the company. This is calculated on the basis of the prevision year i.e. the net working capital shown a decreasing trend compare to the year 2002-03 then the net working capital increaser gradually from 2003-04 & 2005-06.

TYPES OF RATIOS Several ratios calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated the parties interested in financial analysis are short and long term creditors owners and managements short term creditors main interested is in the liquidity position or short term solvency of the form long term creditors on the other hand. Are more interested in the long-term solvency and profitability of the form. Similarly owners are more interested on the form profitability and conditions. Management is interested in evaluating every aspect of the forms performance. They have protect interested of all the parties. The ratios are classified into three types. (a). (b). (c). Liquidity Ratios Leverage Ratios Profitability Ratios

LIQUIDITY RATIOS:Liquidity Ratios measure the ability of the firm to meet its current obligations. The analysis of liquidity needs the preparation of cash budget and cash fund flow statement but liquidity ratios by establishing relationship between cash and other current asset of current obligation, provide a quick measures of liquidity. A firm should ensure that it does not suffer form.

LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:Liquidity ratio measures the short-term solvency of the firm. The following are the important liquidity ratios.
4.2 WORKING CAPITAL RATIOS:Current Assets Current Ratio = ---------------------Current Liabilities The current Ratio is calculated by dividing current assets by current liability. The current ratio is a measure of the firms short term solvency a current ratio of 2 or more in considered satisfactory. TABLE 2 CURRENT RATIO (In Lakhs)
Year 2002-03 2003-04 2004-05 2005-06 Current Assets 17846.14 15800.00 20272.00 1377.11 Current Liabilities 4652.24 5117.81 11485.00 5130.73 Current Ratios 4.10 3.09 1.76 2.69


5.00 4.00 Ratios 3.00 2.00 1.00 0.00


Current Ratios





INTERPRETATION:Generally 2:1 in considered ideal for a concern from the ratios we can observe that the ratios are above the standard in the year 2002-03 & 2003-04 but in the year 2004-05 the firm in not able to maintain a standard level of liquidity so the current assets ratio has been directed below standard level that is by 1.76 but in the year 2005-06 the company is able to regain its standard level and can obtain its current assets ratio by 2.69 compared to its current liabilities.

Quick Assets Quick or Acid Test Ratio = -----------------------Current Liabilities

The quick Ratio is more penetrating test of Liquidity than Current Ratio, this Ratio measures the firms liability to meet short term liabilities from its liquid assets that is current assets inventories. TABLE 3 QUICK RATIO

Year 2002-03 2003-04 2004-05 2005-06

Quick Assets 10141.00 8697.00 15335.00 9722.00

Current Liabilities 4352.00 5118.00 11486.00 5130.00

Quick Ratios 2.33 1.64 1.34 1.89


Quick Ratio
2.5 2


1.5 1 Series1

0.5 0 2002-03 2003-04 2004-05 2005-06


INTERPRETATION: Quick ratio is ascertained by comparing the liquid assets this ratio shows the immediately available assets which can be easily converted in to cash to meet the short term solvency of the company the normal value which shows the non availability of assets for immediate conversion into liquid cash in the later year the figures were a little.

ABSOLUTE LIQUIDITY RATIO:It is the ratio of absolute liquidity assets to quick liabilities. However, for calculation purpose it is taken as ratio of absolute assets includes cash in hand at bank and short term or temporary inventory investments.

Absolute Liquidity Assets Absolute Liquidity Ratio = -------------------------------Current Liabilities Absolute Liquidity Assets = Cash in hand + Cash at bank + Short term investments The ideal Absolute Liquidity Ratio is taken as 1:2 or 0.5
Absolute Liquid Assets 23,432,000.00 20,246,000.00 167,776,000.00 61,935,000.00 150,900,000.00 Current Liabilities 453,466,000.00 381,185,000.00 449,562,000.00 447,780,000.00 340,710,000.00 Current Ratio 0.05:1 0.05:1 0.37:1 1.14:1 0.44:1

S.No 1 2 3 4 5

Year 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

ANALYSIS:The above tables shows the Absolute Liquidity Ratio during the study period the ratio was 0.08:1 in 2002 and gradually decreases to 0.05 in 2003, which in 2003, which to too below from the standard 0.05:1 so the company, should try to improve and also maintain this ratio

LEVERAGE OR CAPITAL STRUCTURES RATIOS:Leverage ratios indicate, the relative interest of owner and creditors in a business. The significant Leverage ratios are 1.DEBIT EQUITY RATIO:The ratio examines the relationship between funds and owners funds of a firm. In other words it measures the relative claims of creditors and shareholders against the assets of a business. Debit, usually refers to the long-term liabilities. Equity and performance share capitals and reserves. Long Term Liabilities Debit Equity Ratio = -----------------------------------------Share Holders Funds
Long Term Liabilities 1,978,031,000.00 2,398,602,000.00 2,306,560,000.00 2,532,963,000.00 662,910,000.00 Share Holders funds 361,731,000.00 361,731,000.00 361,731,000.00 363,431,000.00 1,237,367,000.00 Debit equity ratio 5.47 6.63 6.38 6.97 0.54

S.No 1 2 3 4 5

Year 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

ANALYSIS:A high debt equity ratio means a high claim of outsider on the assets of business and very highly debt financed from will be under great pressure to pay the interest charges and it is unfavorable to the firm. A firm with a debt equity ratio of two or less exposes its creditors to relatively less risk a firm a high debt equity ratio exposes its creditors to grater risk so this firm should minimize this ratio.

Net Sales WORKING CAPITAL TURNOVER RATIO = ----------------------Working Capital

This ratio in computed by dividing net sales by working capital this ratio helps to measure the efficiency of the utilization of net working capital is needed if any increase in sales is contemplated working capital should be a adequate and thus this ratio helps management to maintain the adequate level of working.



Net Sales

Working Capital

Working Capital Turnover Ratio

2002-03 2003-04 2004-05 2005-06

15192.02 16283.04 23993.07 24610.98

13493.9 10682.82 8786.15 8646.38

1.1 1.49 2.56 2.85


INTERPRETATION: This ratio maker a comparison between net sales and net working capital in order to find the working capital turnover ratio the working capital turnover ratio for the year 2002-03 in 1.10 hence there is increase in working capital turnover ratio for the next 3 year has increased in a gradual way in the last year the net sales has been increased and the working capital in being similarly that of previous year hence the working that of previous year hence the working that capital turnover ratio is at 2.82 in the year 2005-06.

4.4 RECEIVABLES MANAGEMENT 1. DEBTORS TURNOVER RATIO: Debtor constitute an important constitute of current assets & their fore the quality of debtor to great extent determines a firm liquidity of a firm use two ratio. They are debtors turnover ratio & debt collection period ratio. This ratio indication the speed with which debtors receivable are being collected there it is indicative of the efficiency of trade credit management. The higher the turnover ratio the better the trade credit management & the better the liquidity of debtors.


Year Total Sales Account Receivables Debtors Turnover Ratio

2002-03 2003-04 2004-05 2005-06

15191.02 16283.04 24948.18 25884.26

3803.54 4513.34 10325.48 5143.55

3.99 3.66 2.42 5.03


Debtors Turnover Ratio

6 5 4


3 2 1 0 2002-03 2003-04

Debtors Turnover Ratio




INTERPRETATION: From the date of interpretation it in observed that both the rates & account revisable are going up, we see that in the year 2002-2003 the division was in a very good portion regarding the collection but in the year 2004-2005 due to increase in the amount of average payables the ratio has come down drastically. In the year 2005-06 the decrease in the previous year has been reduced by the increased in the ratio of current year 2005-06.

2.DEBITORS COLLECTION PERIOD: Their ratio indication the extent to which the debts have been collected in time it gives the average debt collection period the ratio is very helpful to the lenders because it explain them whether borrowers are collating money in a reasonable time an increase in the period reflects grater blockage of funds in debtors a very long collection period would imply either power credit selection or and inadequate collection effort. TABLE-6 DEBTORS COLLECTION PERIOD (In Lakhs)
Year 2002-03 2003-04 2004-05 2005-06 No of Days 364 365 365 365 Debtors Turnover Ratio 3.99 3.66 2.42 5.03 Debtors Collection Period in Days 91 100 151 73



During the year 2005-2006 average collection period is very low which indicates the better quality of debtors as the quick payments by them with in a shot period During the year 2004-2005 average collection period is very high as 151 days which indicate ting the inefficient performance of the debtor as by laet payments.

2. INVENTORY TURNOVER RATIO This ratio indicates whether inventory has been efficiently used or not. This ratio checks whether only the required minimum has been looked up in inventory.

Cost of good Sold I.T.R = ----------------------Average Inventory Cost of goods of Sold = Opening Stock + Purchase + Direct expenses - Closing

Opening Stock + Closing Stock Average stock = ----------------------------------------2


Year Cost of Goods sold Avg. Inventory Inventory Turnover Ratio

2002-03 2003-04 2004-05 2005-06

10711.19 11850.37 18665.5 16358.92

7704.71 7554.4 6170.48 4495.96

1.39 1.57 3.02 3.46


4 3.5 3 2.5 2 1.5 1 0.5 0


Inventory Turnover Ratio


Inventory Turnover Ratio


2004-05 Year


INTERPRETATION:From the above figure given in the table we can interpret that the inventory to the cost of goods sold for the year 2002-03 in 1-39 their ratio has been increasing continuously in an exponential manner in all the year which in a good sign to the company. This shows the effective utilization of the inventory by the company. In the year 2002-03 the percentage of inventory in current assets 42.17% which is not beneficial sign to the company. In the next year has increased by nearly 3% more than the previous year at that time the company retained not to block the current assets with inventory, in the year 2004-05 it has decreased drastically to 24%. In the following year this has increased by 5% but this is not sufficient on the increase in the recent past was much more than that.


Days in Year Inventory Holding Period (in days) = ---------------------------------Inventory Turnover Ratio

The ratio represents the length of time required for conversion of investments in inventoried for conversion of investments in invests airier to cash of a firm as a result, the firm will be able to forecast its working capital requirements. Lower ratio suggested better inventory management their ratio is calculated by dividing the number of days of year by inventory turnover ratio.


Year No. of Days Inventory Turnover Ratio Collection Period

2002-03 2003-04 2004-05 2005-06

365 365 365 365

1.93 1.39 2.27 3.29

189 Days 263 Days 161 Days 111 Days


Collection Period in Days 300 250 200


150 100 50 0 2002-03 2003-04 2004-05 2005-06

Collection Period in Days


INTERPRETATION: In general the inventory ratio of any company should be as low as foible. The reason being the occurrence of the blockage of money due to holding of the inventory. The figure shows in the year 2004-05 and 2005-06 also would have been for the company if they were similar to the velour in the year 2002-03 & 2003-04.

7. AVERAGE COLLECTION PERIOD:The ratio is another device to measure the quality of debtors. It shows the nature of the firm credit policy to the shorter period. The better the quality of debtors since the short term collecting period implies prompt payment by debtors and excessively long period implies a too long and liberal and inefficient credit and collection performance where as too low period indicates a very strict credit and collection period. Months in a Year Average Collection Period = ---------------------Debtors Turnover S.No. 1. 2. 3. 4. 5. Year 20012002 20022003 20032004 20042005 20052006 ANALYSIS:The table shows that the average collection period of the company the average collection period was 9.52 month in 2002, which is decreased to 4.76 in the month of 2005 it shows the company is unable to collect the money in proper time or company is extending more credit period to the customer. The company should try to reduce this credit period. No. of Months in a year 12.00 12.00 12.00 12.00 12.00 Debtors Turnover Ratio 1.26 0.81 2.31 2.52 3.17 Average Collection period 9.52 14.81 4.76 4.76 3.79


FINDINGS 1. The company is not having sufficient working capital 2. Inventories are decreased by year by year 3. Loans & advances are decreases by year by year 4. current liabilities are more than current assets. 5. The working capital is negative working capital 6. Current liabilities are decreased by ever year but in 2003-04 to 14.12% and again in 2004-2005 decreased from 14-42% to 13.39% 7. long term liabilities are increased by every year but in 2003.04 year long term liabilities are decreased from 76.356 to 73.989 and again increased from 74.98% to 7-8-76%
8. The Quick Ratio > 1 which shows the sound short-term solvency. 9. The suggested current ratio is 2:1. But it is not fixed as it various from; industry. Here in this case the current ration is more than 1 and it is enough to meet the current liability. 10. When comparing Working capital is compared with net sales it is in increasing trend indicating the effective utilization of the net working capital. 11. The debtors turnover ration is high and it shows the better trade credit management. 12. Debtors collection period is very less which shows the better trade credit management. 13. Debtors collection is very less it shows the better collection of funds from debtors. 14. Inventory holding period is less; it shows the better management of inventory.

15. Through the preparation of funds flows statement analysis it is cleared that the Company is losing its funds through its operating. But the positive Elements is the losses through its operations and its decreasing year by year. That is when the losses where in the year 2000-01. 16. It is understand that from the year 2000-01 to the year 2004-05 there was decreased in working capital position in the major circumstances this cleared that company is trying to procure the funds all the times in order to compensate on wipe on the losses.

17. It is to be observed that the companys new worth is decreases considerably. Through this increase in procurement of secured loans. 18. The decrease in figures of sources and applications from the year 2000101 to the year 20002-03 makes at clear that the company is no activity increasing or standardizing of its operations.

The company is performing exceptionally well due to the up wising in the global market followed by the domestic market. It is an up coming one with good and innovative ideas and believed in improving all the areas of its operations. The company has a good liquidity position and does not delay its commitment in case of both its creditors and debtors. The company being mostly dependent on the working capital facilities, it is maintaining very good relationship with their banks and their working capital management is well balanced.

SUGGESTIONS:1. The manpower needs to be assessed in relation to production and sales. The excess of employees should be removed through various measures like VRS, retirements and destructing the requirement of new employees. 2. There are various global challenges that are faced by every company n the present competitive environment and PRAGA TOOLS is not any exemption. To face the present global challenges the human resources department should be develop to improve various skills among the employees specially the motivational skills and having the regular training for the employees about various developments in the market. 3. The marketing department should be restructured on profit center and product line basis. The new marketing strategy should also make efforts to regain the agents in Germany and UK. They should also make efforts to regain the defiance and railways and find new markets for expansion. 4. There are various development taking in the industry to change it the company should develop a full fledged research and development department for bringing technological change and improvement in design and process. 5. The policy of development new market with the accreditation of ISO 9001 and C.E. making for certain products should be continuous as it will help in development the confidence of foreign buyers. 6. The sundry debtors should be efficiently managed so that the outstanding are to be cleared at short intervals. The company should appoint on different areas on a success fees basis to collect the debtors.

7. The cost of holding inventory is too high so the inventory holding period is to be reduced and to build up inventory in anticipation of export orders from Russia and Germany. 8. The company has to make new joint venture with other companies in order to reduce the losses. 9. The current assets should be managed more effectively so as to avoid unnecessary blocking of capital that could be used for other purposes. 10. The Working Capital requirement is to be assessed based on the norms circulated by RBI for the machine tools industry. 11. The inventory turnover ratio has decreased considerably from the year 2001-02 to 2004-05. This was due to the huge average stock holding even when there was a decrease in sales figure this clears that inventory should be managed appropriately moreover it was improved in the year 2003-04. 12. The company has maintained proper records showing full particulars, quantitative details and solutions of fixed assets are indicated for major items in the register, the managements during the year has conducted a random verification in respect of fixed assets, which in our opinion is reasonable, having regard to the size of the company and the nature of tits assets. 13. The management has physically verified the stock of finished goods and work in progress at the end of the year. 14. In respect of service activities there is a reasonable system for recording receipts issues and consumption of materials and stores and collection of materials consumed to the relative jobs, commensurate with the size and nature of its business.

BOOKS Financial management Financial management Management accounting Financial Management and polices Financial Management Khan and Jain, Tata Mcgrw Hill Prasanna Chandra, Tata Mcgrw Hill R.K. Sharma and K. Gupta V.K. Bhalla, ANMOL Publication Pvt., Ltd., K. Rajeswari, Sultan chand & sons

Catalogues & Boucher PRAGA Tools Ltd.,

Web sites www. Pragatools.org www.machinetoolsindustry.com